Safety Announces Third Quarter 2006 Results and Declares Fourth Quarter 2006 Dividend

Safety Insurance Group, Inc. (NASDAQ:SAFT) today reported third quarter 2006 results. Net income for the quarter ended September 30, 2006 was $29.1 million, or $1.81 per diluted share, compared to $30.5 million, or $1.92 per diluted share, for the comparable 2005 period. Net income for the nine months ended September 30, 2006 was $89.0 million, or $5.57 per diluted share, compared to $68.2 million, or $4.29 per diluted share, for the comparable 2005 period. Safety’s book value per share increased to $29.67 at September 30, 2006 compared to $24.57 at December 31, 2005. Safety paid $0.61 per share in dividends to investors during the nine months ended September 30, 2006 compared to $0.42 per share during the comparable 2005 period. Safety paid $0.60 per share in dividends to investors during the year ended December 31, 2005. Direct written premiums for the quarter ended September 30, 2006 decreased by $4.9 million, or 3.0%, to $156.3 million from $161.2 million for the comparable 2005 period. Direct written premiums for the nine months ended September 30, 2006 decreased by $17.5 million, or 3.4%, to $496.9 million from $514.4 million for the comparable 2005 period. The 2006 decrease occurred primarily in our personal automobile line, which experienced a 6.9% decrease in average written premium. Partially offsetting the personal auto line decrease, were increases in our commercial automobile line’s average written premium of 12.6% and our homeowners line’s average written premium of 6.2%. Net written premiums for the quarter ended September 30, 2006 decreased by $1.1 million, or 0.7%, to $155.8 million from $156.9 million for the comparable 2005 period. Net written premiums for the nine months ended September 30, 2006 decreased by $19.8 million, or 3.9%, to $491.4 million from $511.2 million for the comparable 2005 period. These decreases were due to the factors that decreased direct written premiums combined with a decrease in premiums ceded to Commonwealth Automobile Reinsurers ("CAR”). Net earned premiums for the quarter ended September 30, 2006 decreased by $0.8 million to $156.7 million from $157.5 million for the comparable 2005 period. Net earned premiums for the nine months ended September 30, 2006 increased by $0.3 million to $470.8 million from $470.5 million for the comparable 2005 period. Net investment income for the quarter ended September 30, 2006 was $10.3 million compared to $7.9 million for the comparable 2005 period. Net investment income for the nine months ended September 30, 2006 was $29.6 million compared to $23.1 million for the comparable 2005 period. Average cash and investment securities (at cost) increased by $79.0 million, or 9.6%, to $905.8 million for the nine months ended September 30, 2006 from $826.8 million for the comparable 2005 period. Net effective annualized yield on the investment portfolio increased to 4.4% during the nine months ended September 30, 2006 from 3.7% during the comparable 2005 period. Our duration increased to 4.6 years at September 30, 2006 from 3.2 years at December 31, 2005. Net realized losses on investments was $0.3 million for the nine months ended September 30, 2006 compared to net realized gains of $0.5 million for the comparable 2005 period. Loss, expense and combined ratios calculated under U.S. generally accepted accounting principles ("GAAP”) for the quarter ended September 30, 2006 were 56.7%, 25.1% and 81.8% compared to 57.0%, 23.3% and 80.3% for the comparable 2005 period. Loss, expense and combined ratios calculated under GAAP for the nine months ended September 30, 2006 were 55.1%, 25.8% and 80.9% compared to 62.4%, 24.1% and 86.5% for the comparable 2005 period. The loss ratio improved as a result of a decrease in personal and commercial automobile bodily injury and physical damage claim frequency and an increase in favorable loss development in our personal and commercial automobile and homeowners lines prior year results. Total prior year favorable development included in the pre-tax results for the quarter and nine months ended September 30, 2006 was $10.1 million and $35.5 million, respectively, compared to prior year favorable development of $10.2 million and $27.5 million, respectively, for the comparable 2005 periods. The Board of Directors today approved and declared a $0.25 per share quarterly cash dividend on the issued and outstanding common stock, payable on December 15, 2006 to shareholders of record at the close of business on December 1, 2006. About Safety: Safety Insurance Group, Inc. is the parent of Safety Insurance Company and Safety Indemnity Insurance Company, which are Boston, MA, based writers of property and casualty insurance. Safety is a leading writer of personal automobile insurance in Massachusetts. Additional Information: Press releases, announcements, U. S. Securities and Exchange Commission ("SEC”) Filings and investor information are available under "About Safety”, "Investor Information” on our Company website located at www.SafetyInsurance.com. Safety filed its December 31, 2005 Form 10-K with the SEC on March 16, 2006, filed its March 31, 2006 Form 10-Q on May 10, 2006, filed its June 30, 2006 Form 10-Q on August 9, 2006 and urges shareholders to refer to those documents for more complete information concerning Safety’s financial results. Cautionary Statement under "Safe Harbor" Provision of the Private Securities Litigation Reform Act of 1995: This press release contains, and Safety may from time to time make, written or oral "forward-looking statements" within the meaning of the U.S. federal securities laws. Forward-looking statements might include one or more of the following, among others: Projections of revenues, income, earnings per share, capital expenditures, dividends, capital structure or other financial items; Descriptions of plans or objectives of management for future operations, products or services; Forecasts of future economic performance, liquidity, need for funding and income; and Descriptions of assumptions underlying or relating to any of the foregoing. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as "believe,” "expect,” "anticipate,” "intend,” "plan,” "estimate,” "aim,” "projects,” or words of similar meaning and expressions that indicate future events and trends, or future or conditional verbs such as "will,” "would,” "should,” "could,” or "may”. All statements that address expectations or projections about the future, including statements about the Company’s strategy for growth, product development, market position, expenditures and financial results, are forward looking statements. Forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. There are a number of factors, many of which are beyond our control, that could cause actual future conditions, events, results or trends to differ significantly and/or materially from historical results or those projected in the forward-looking statements. These factors include but are not limited to the competitive nature of our industry and the possible adverse effects of such competition. Although a number of national insurers that are much larger than we are do not currently compete in a material way in the Massachusetts private passenger automobile market, if one or more of these companies decided to aggressively enter the market it could have a material adverse effect on us. Other significant factors include conditions for business operations and restrictive regulations in Massachusetts, the possibility of losses due to claims resulting from severe weather, the possibility that the Commissioner may approve future Rule changes that change the operation of the residual market, our possible need for and availability of additional financing, and our dependence on strategic relationships, among others, and other risks and factors identified from time to time in our reports filed with the SEC, such as those set forth under the caption "Risk Factors” in our Form 10-K for the year ended December 31, 2005 filed with the SEC on March 16, 2006. Some other factors, such as market, operational, liquidity, interest rate, equity and other risks, are described elsewhere in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. Factors relating to the regulation and supervision of our Company are also described or incorporated in our Quarterly Reports on Form 10-Q and our Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2006. There are other factors besides those described or incorporated in this release or in the reports on Form 10-Q and Form 10-K that could cause actual conditions, events or results to differ from those in the forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Safety Insurance Group, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands, except share data)   September 30, December 31, 2006  2005  (Unaudited) Assets Investment securities available for sale: Fixed maturities, at fair value (amortized cost: $910,451 and $713,930) $ 911,067  $ 712,538  Equity securities, at fair value (cost: $3,929 and $1,895)   4,126    2,005  Total investment securities 915,193  714,543  Cash and cash equivalents 23,551  163,027  Accounts receivable, net of allowance for doubtful accounts 164,120  154,421  Accrued investment income 9,610  7,856  Taxes recoverable 120  318  Receivable from reinsurers related to paid loss and loss adjustment expenses 17,403  18,750  Receivable from reinsurers related to unpaid loss and loss adjustment expenses 78,279  80,550  Prepaid reinsurance premiums 34,834  37,174  Deferred policy acquisition costs 50,905  45,480  Deferred income taxes 17,909  18,120  Equity and deposits in pools 44,469  14,631  Other assets   3,096    2,805  Total assets $ 1,359,489  $ 1,257,675    Liabilities Loss and loss adjustment expense reserves $ 437,726  $ 450,716  Unearned premium reserves 359,833  341,562  Accounts payable and accrued liabilities 32,257  44,372  Outstanding claims drafts 16,439  19,825  Payable to reinsurers 37,892  12,985  Capital lease obligations   96    266  Total liabilities   884,243    869,726    Shareholders' equity Common stock: $0.01 par value; 30,000,000 shares authorized; 16,019,436 and 15,787,947 shares issued and outstanding, respectively 160  158  Additional paid-in capital 127,062  120,451  Accumulated other comprehensive loss, net of taxes 528  (833) Retained earnings   347,496    268,173  Total shareholders' equity   475,246    387,949  Total liabilities and shareholders' equity $ 1,359,489  $ 1,257,675  Safety Insurance Group, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) (Dollars in thousands, except per share and share data)   Three Months Ended Nine Months Ended September 30, September 30, 2006  2005  2006  2005    Net earned premiums $ 156,748  $ 157,521  $ 470,787  $ 470,451  Net investment income 10,344  7,939  29,556  23,051  Net realized gains (losses) on investments -  58  (261) 454  Finance and other service income   3,737    4,322    11,316    12,268  Total revenue   170,829    169,840    511,398    506,224    Losses and loss adjustment expenses 88,829  89,748  259,184  293,720  Underwriting, operating and related expenses 39,422  36,769  121,574  113,335  Interest expenses   21    262    65    710  Total expenses   128,272    126,779    380,823    407,765    Income before income taxes 42,557  43,061  130,575  98,459  Income tax expense   13,452    12,586    41,529    30,236  Net income $ 29,105  $ 30,475  $ 89,046  $ 68,223      Earnings per weighted average common share: Basic $ 1.83  $ 1.95  $ 5.63  $ 4.39  Diluted $ 1.81  $ 1.92  $ 5.57  $ 4.29    Cash dividends paid per common share $ 0.25  $ 0.18  $ 0.61  $ 0.42    Weighted average number of common shares outstanding: Basic   15,887,574    15,630,838    15,809,047    15,552,128  Diluted   16,051,606    15,878,212    15,978,096    15,912,808